Royalty Exchange offers marketplace to buy, sell royalty streams

Dec. 6, 2013

Written by

The Tennessean

Royalty Exchange, a new company that provides a marketplace for the sale and purchase of royalties, has set up shop in Nashville.

The Tennessean’s music business reporter Nate Rau sat down with Royalty Exchange vice president for east coast sales Preston Sullivan, a veteran of the music industry, to talk about the company, its business model and its path to success in Nashville.

Explain the history of Royalty Exchange, how did the company get started?

The company started out in 2008 as Song List and it was simply an eBay for memorabilia. They created a marketplace for people to buy memorabilia in an auction format. And Sean Peace decided the niche was a little too small and thought, ‘Wow, there are $10 billion of royalties paid out every year for books and music worldwide.’ There was just a bigger marketplace than the memorabilia market.

So he created Royalty Exchange to answer that marketplace.

How would you explain the company’s business model for somebody who had never heard of it before?

The simple way for me to explain it is, regardless of where the royalty stream comes from, whether it’s music, books, pharmaceutical patents, gas, solar, wind energy, people are paid royalties. If you own that asset and it’s assignable, and you want to monetize a percentage of it or all of it, we are the first to create a marketplace to sell those royalties to investors and we do it in an auction platform.

What’s an example of how it works?

An example would be, I wrote a song. And I have X-amount of dollars coming in annually. And then from the mechanical-side, my writer’s share of royalty stream, I can take the combination of that money – say it’s $25,000 a year. We will ask for three or four years of statements, we will then analyze that with the seller and say, ‘You set your reserve price, but we think our investors will at least pay this amount.’

So the seller sets their floor?

The seller sets their reserve. Everything is completely transparent. We will then work with the seller after we analyze it, in fact the buyer, will see all the information we put together analytically as well. .

The advantage to the seller is the cash upfront? What’s your sales pitch to Nashville’s music community?

It’s using that money to do whatever they need to do. That’s the important thing in this changing climate in the music industry. When I put my quarter-of-a-million dollars into music publishing in the 1980s and 1990s, it was like, ‘Man this is my 401(k),’ never dreaming the digital world would allow people to come in and take stuff right off the shelf. Nowadays, and this is really realistic, for a song to be cut over and over again is more rare than ever before. A lot of big writers don’t want to write a song unless an artist is in the room, so our climate has changed.

To be able to reach out to my friends and associates and say, ‘If you have a need to monetize this asset – you may want to buy a franchise, or put your kids through college, or put your money back into your own publishing company – then we are an alternative opportunity to do it.

Why are investors interested in buying royalties?

Investors like royalty streams. They can be a nice, long, safe investment for their money.